Many of you have probably heard of the Panera Bread Company (PNRA), which operates a well known retail bakery-cafe in the United States and Canada. Panera Bread is a chain of fast casual restaurants that offers soups, salads, sandwiches and more. The company itself actually operates in three different segments: Franchise Operations, Bakery-Cafe Operations, and Fresh Dough and Other Product Operations. Clearly, the Franchise Operations segment licenses the Panera Bread names and monitors the operations of the franchises, the Bakery-Cafe Operations monitors the operations of the company-owned Panera Bread locations, and the Fresh Dough and Other Product Operations segment handles the supplies of the fresh products.
The Panera Bread bakery-cafes specialize in high quality freshly baked food for breakfast and lunch. They are located mainly in suburban and mall locations, with fresh dough being supplied through company-owned commissaries. The bakery-cafes feature organic and all-natural products extensively throughout the menu. The organization aims to target primarily suburban workers and dwellers who want a higher quality and better-looking lunch and breakfast experience than can be received in typical fast food restaurants.
PNRA firmly believes its concept can become a nationally recognized brand name and that its concept has tremendous growth potential in suburban markets. At the end of 2013, the Panera Bread Company held 1,777 bakery-cafes (including both company-owned and franchise-owned locations). The company has also been experiencing positive growth. In the year 2013, the company managed an increase of 2.3% in same-store sales, due in part to an increase in both the number of transactions, as well as the overall average ticket price. The company was also able to add 133 locations in 2013, with 63 being company owned and 70 opened by franchisees. The company plans to add roughly 125 new restaurants this year.
During 2013, PNRA repurchased almost 2 million of its shares for a combined purchase price of $332 million. The company still has about $248 million available under the 2012 board-approved 3-year $600 million share repurchase program as of February 2014. The company has also stated that it expects a reduction in the amount repurchased in 2014, as compared to 2013.
Valuation
With an Operating Margin of 11.78%, Panera Bread is able to control its costs and expenses better than 82% of their peers. The company has also increased their 12-month Free Cash Flow growth to 29.4%. Revenue has also experienced an impressive steady increase over the last 10 years:
Total Current Assets are 18.6% greater than Total Current Liabilities, and Total Assets are 131% greater than Total Liabilities. Utilizing the Conventional P/E Method shows a slightly lower P/E ratio, and the Peter Lynch method estimates no increase in price. Conversely, the Gurufocus DCF Calculator estimates a fair value price per share of $193.87, which offers a 24% margin of safety. This assumes a 20% growth rate over the next 10 years, as well as a discount rate of 12% and a terminal growth rate of 4%.
How do you feel about this company? Is it one worth purchasing given the prospect of increasing nationwide growth?
End notes
Disclosure: No current position held at the time of writing.
Disclaimer: The opinions and ideas in this article are for informational and educational purposes only. They are not a recommendation to buy or sell any stock at any given time. As always, it is imperative for each individual investor to do their own due diligence and perform their own research on any and all stocks before making an investment decision.
